Your income is $4900 and your utility is equal to the square
root of your income. You have a 20% chance of getting sick; if you
do, you incur $2400 in medical costs. There is no insurance in this
example.
What is your expected utility?
sqrt(4900)*.8 + sqrt(2500)*.2 = 66
sqrt(4900*.8 + 2500*.2) = 66.48
sqrt(2500) = 50
sqrt(4900) = 70
Use the income, utility, income loss due to sickness, and
probability of sickness from the above example. Now consider...